india symposium ibef sectoral reports food processing

8/8/2019 India Symposium IBEF Sectoral Reports Food Processing

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F O O D P R O C E S S I N G


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FOOD PROCESSING

Market Overview 2

Competitive Advantages 12

Government Regulations and Support 16

Profile of Domestic and Overseas Players 19

Contact For Information 24

A report by KPMG for IBEF


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Market Overview

The food processing industry is one of the largest industries in

India - it is ranked fifth in terms of production, consumption,export and expected growth. The industry size has been

estimated at US$ 70 billion by the Ministry of Food Processing,

Government of India. The food processing industry contributed

6.3 per cent to Indias GDP in 2003 and had a share of 6 per

cent in total industrial production. The industry employs 1.6

million workers directly.

Food processing is a large sector that covers activities such as

agriculture, horticulture, plantation, animal husbandry and

fisheries. It also includes other industries that use agriculture

inputs for manufacturing of edible products. The Ministry of

Food Processing, Government of India indicates the following

segments within the Food Processing industry

Dairy, fruits & vegetable processing

Grain processing

Meat & poultry processing

Fisheries and

Consumer foods including packaged foods, beverages and

packaged drinking water.

While the industry is large in size, it is still at a nascent stage in

terms of development. Of the countrys total agriculture and

food produce, only 2 per cent is processed. The highest share of

processed food is in the dairy sector, where 37 per cent of the

total produce is processed, of this only15 per cent is processed

by the organised sector.

Level of processing in food processing sector

Item Level of Level of Total|

Processing in Processing in Processing

Organised Unorganised

Sector sector

Fruits & Vegetables 1.2% 0.5% 1.8%

Dairy Products 15% 22% 37%

Meat 21% 21%

Poultry 6% 6%

Marine Fisheries 1.7% 9% 10.7%

Shrimps 0.4% 1% 1.4%

Source: Cygnus Report, Indian Food Processing Sector, 2005

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Segmentation of different sectors in food processing industry

Sectors Products

Dairy Whole Milk Powder, Skimmed milk powder, Condensed milk,

Ice cream, Butter and Ghee, Cheese

Fruits & Vegetables Beverages, Juices, Concentrates, Pulps, Slices, Frozen &

Dehydrated products, Potato Wafers/Chips, etc

Grains & Cereals Flour, Bakeries, Starch Glucose, Cornflakes, Malted Foods,

Vermicelli, Beer and Malt extracts, Grain based Alcohol

Fisheries Frozen & Canned products mainly in fresh form

Meat & Poultry Frozen and packed - mainly in fresh form, Egg Powder

Consumer Foods Snack food, Namkeens, Biscuits, Ready to eat food, Alcoholicand Non-alcoholic beverages

Food Processing Units in Organised Sector (numbers)

Flour Mills 516

Fish processing units 568(+ 482 cold storage units)

Fruit & vegetable processing units 5,293

Meat processing units 171

Sweetened & aerated water units 656

Milk product units 266

Sugar mills 429

Solvent extract units 725

Rice mills 139,208

Modernized rice mills 35,088

Source: Ministry of Food Processing India, Annual Report 2004

The industry is estimated to grow at 9-12 per cent, on the basis of an

estimated GDP growth rate of 6-8 per cent, during the tenth five-year plan

period. Value addition of food products is expected to increase from the

current 8 per cent to 35 per cent by the end of 2025. Fruit & vegetable

processing, which is currently around 2 per cent of total production will

increase to 10 per cent by 2010 and to 25 per cent by 2025.

Given the size of the industry and the nascent development stage,

the food processing sector is a key focus area for the Government of India.

The importance of the sector is further enhanced by the fact that over

70 per cent of the population depends upon agricultural activity for livelihood.

The government has therefore been focusing on commercialisation and value

addition to agricultural produce, minimising pre/post harvest wastage, generating


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employment and export growth in this sector, through a number

of regulatory and fiscal incentives.

The industry is largely unorganised, with a small butgrowing organised sector

Primary food processing is a major industry with a highly

fragmented structure that includes hundreds of thousands of

rice-mills and hullers, flour mills, pulse mills and oil-seed mills,

several thousands of bakeries, traditional food units and fruits,

vegetable and spice processing units in the unorganised sector.

In comparison, the organised sector is relatively small, with

around 516 flour mills, 568 fish processing units, 5,293 fruit

and vegetable processing units, 171 meat processing units and

numerous dairy processing units at state and district levels.

The share of the organised and unorganised sectors varies across

different segments of the industry.

Source: Cygnus-Indian Food Processing Industry, 2005

Diary Sector, 2003

0

50

100

150

200

250

US$million

Others

Milk Powder

Ghee

Ice cream

Butter

Cheese

Curd and Products

Ethnic sweets

Packaged milk

Organized Unorganized

Source: Cygnus-Indian Food Processing Industry, 2005

Share of categories in Indian fruits &

Vegetables processing sector, 2003

0

20

40

60

80

100

US$million

Organized Unorganized

Juices/drinks

Pulp/Concentrat

Potato chips

Pickles

Ready vegetables

Sauce/Ketchups

Squashes

JamCooking Pastes

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In the dairy sector, most of the processing is done by the unorganised

sector. Though the share of organised sector is less than 15 per cent, it is

expected to rise rapidly, especially in the urban regions. Among the milk

products manufactured by the organised sector, some of the prominent onesare ghee, butter, cheese, ice creams, milk powders, malted milk food,

condensed milk and infant foods.

Fruit and vegetable processing in India is almost equally divided between

the organised and unorganised sectors, with the organised sector holding

48 per cent of the share. While products like juices and pulp concentrate

are largely manufactured by the organised sector, the unorganised sectors

foothold is in the traditional areas of processed items like pickles, sauces

and squashes. By size, pickles form the strongest category.

In the meat processing sector, India has 3,600 slaughter houses, 9 modern

abattoirs and 171 meat processing units licensed under Meat ProductsOrder. A few modern pork processing plants are also coming up in the

country.

The units in the fish processing sector are largely small scale proprietary/

partnership firms or fishermen co-operatives. In the past ten years, the

corporate sector has increased its operations in preservation, processing

and export of coastal fish.

The packaged food industry has around over 60,000 bakeries, 20,000

traditional food units and several pasta food units. In the past decade several

new biscuits & confectionery units, soya processing units and starch/glucose/

sorbitol producing units have come up. Multinational Companies are comingup in confectionery and cocoa based products areas.

The industry structure and ongoing transformation offers opportunities for

organised players to invest and grow. As the Indian market matures and

consumers become more quality and brand conscious, the organised sector is

poised to grow and gain prominence.

Indian food processing industry offers significant growth potential

The market size

and growth rates of some of the products in organised dairyand consumer food segments are shown in the graph below.

Market size- growth rates of different product

segments

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

0 100 200 300 400 500

Market size(US$ million)

Confectionery

Cheese

Dairywhitener Branded

Butter Chocolate

Biscuits

Bread

Ice Creams

Fruitjuices

Growthrates(%)


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Most sectors in the food processing industry are growing at a

significant rate. The industry shows the potential for sustained

growth based on different aspects such as growth in the

domestic market, trade and foreign direct investment.These are discussed in detail in the following sections.

Significant growth, across all segments

Dairy

India is the largest producer of milk in the world. Milk and milk

products account for a significant 17 per cent of Indias total

expenditure on food. Indias total milk production is projectedto grow to 108 million tonnes by end of 2007 according to the

tenth five-year plan estimates. India is on the verge of assuming

an important position in the global dairy industry.

The 50,000 ton branded butter market, valued at US$ 133 million is

estimated to be growing at 8-10 per cent per annum. The cheese

market is estimated to be US$ 110 million in value terms and an

estimated 54,000 tonnes in volume terms, and has been growing at a

compounded annual growth rate (CAGR) of 8-9 per cent during 1999-

2003. The growth in urban areas has been higher at about 15 per cent

per annum. The ice cream market in India is estimated to be aboutUS$ 199 million per annum.

A few corporate players, including MNCs are now focusing on

this market. For example, Nestle and Britannia have forayed into

emerging segments such as Ultra Heated Treatment (UHT) and

flavoured milk. Ultra Heat Treated (UHT) milk is becoming

popular and the market is estimated at US$ 33.4 million

(Rs1.5 billion).

The growth and future potential in the dairy sector have

resulted in significant investments into this sector in the lastdecade. Total investment in the dairy sector during 1991-2002

was around US$ 3.3 billion, of which foreign investment was

of US$ 245.5 million. Current consumer trends like increasing

urbanisation indicate that this segment will continue to be

attractive in the future.

Fruit and Vegetable Processing

The installed capacity of fruit and vegetable processing industry

has increased from 1.11 million tonnes in 1993 to 2.33 million

tonnes in 2004. The industry, however, is still nascent and just

about 2 per cent of the total output of fruits and vegetables was

processed in the organised and unorganised sectors.

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Over the last few years, the industry has seen a positive growth in

ready-to-serve beverages, fruit juices and pulps, dehydrated and frozen fruits

and vegetable products, pickles, processed mushrooms and curried vegetables.

The government expects the processing in this sector to grow to 10 per centin 2010 and 25 per cent of the total produce by 2025.

Most of the units engaged in above are currently export oriented. Domestic

consumption of processed fruits & vegetable products is low, indicating a

potential for growth through increased penetration of the domestic market.

Grains

India produces more than 200 million tonnes of different food grains every

year. All major grains rice, wheat, maize, barley and millets like jowar(great millet), bajra (pearl millet) & ragi (finger millet) are produced in the

country. About 15 per cent of the annual production of wheat is converted

into wheat products. There are 10,000 pulse mills in the country with a

milling capacity of 14 million tonnes, milling about 75 per cent of annual pulse

production of 14 million tonnes.

The country is self sufficient in grain production and is the second largest rice

producer in the world with a 20 per cent global share. Primary milling of rice,

wheat and pulses is the most important activity in food grains processing.

Total investment in the grain milling sector up to December 2002 was around

US$ 1.5 billion, of which US$ 253.5 million was foreign investment.

Branded rice is becoming popular in both the domestic as well as the export

market. Indian Basmati rice commands a premium in the international market.

This segment thus offers opportunities in marketing of branded grains, as well

as grains processing.

Meat and poultry processing

Source: Ministry of Food Processing, Annual Report 2004

Value(US$'000)

Value of Meat Products manufacturedunder MFPO, 1973

9092 9121

79878771

0

2000

4000

6000

8000

10000

1999-00 2000-01 2001-02 2002-03


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India has a livestock population of 470 million, which includes

205 million cattle and 90 million buffaloes. Processing of meat

products is licensed under Meat Food Products Order, (MFPO),

1973. Total meat production in the country is currentlyestimated at 5 million tonnes annually. Only about 1-2 per cent

of the total meat is converted into value added products.

The rest is purchased raw and consumed at home. Poultry

processing is also at a nascent stage. The country produces

about 450 million broilers and 33 billion eggs annually. Growth

rate of egg and broiler production is 16 per cent and 20 per

cent respectively.

There is a large potential for setting up modern slaughter

facilities and development of cold chains in the meat and

poultry processing sector. For example, buffalo meat is surplus

in the country and also has good export potential. In the case

of poultry, export from India is mostly to Maldives and Oman.

Other markets such as Japan, Malaysia, Indonesia and Singapore

are being explored.

The growing number of fast food outlets in the country has had

a significant impact on the meat processing industry in India.

As per capita incomes rise and urban families live in smaller

units, the demand for processed meat products, which can be

quickly cooked, has been rising. Most of the production of meatand meat products continues to be in the unorganised sector.

Some branded products like Venkys and Godrejs Real Chicken

are, however, becoming popular in the domestic market.

Fish processing

India is the third largest fish producer in the world and is

second in inland fish production. The fisheries sector contributes US$

4.4 billion to the national income, which is about 1.4 per cent of the

total GDP. With its over 8,000 km of coastline, 3 million hectares ofreservoirs, 1.4 million hectares of brackish water, 50,600 sq km of

continental shelf area and 2.2 million sq km of exclusive economic zone,

India is endowed with rich fishery resources and has vast potential for

fishes from both inland and marine resources.

Processing of fish into canned and frozen forms is carried out

almost entirely for the export market. It is widely felt that

Indias substantial fishery resources are under-utilised and there is

tremendous potential to increase the output of this sector.

Total investment in the sector since 1991 has been around

US$ 600 million. With the liberalised policy, fish-processing

sector has been attracting more foreign investments.

Foreign investment up to 2003 has been US$ 122.5 million.

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Consumer foods

Consumer food industry includes packaged foods, aerated soft drinks, packaged

drinking water and alcoholic beverages.

Packaged or convenience foods

This segment comprises bakery products, ready-to-eat snacks, chips, namkeens

(salted snacks and savouries) and other processed foods/ snack foods.

The market size of confectioneries is estimated at US$ 484.3 million growing at

the rate of 5.7 per cent per annum. Biscuits have a market of US$ 373.4 million,

growing at 7.5 per cent per annum. Other products like bread, chocolates are

also growing at a significant rate.

There is a demand for Indian snack food (Ready-To-eat) in overseas markets.

The exports market is estimated at US$ 33.4 million and is growing at around

20 per cent annually.

Aerated soft drinks

The aerated soft drinks industry in India comprises over 100 plants across all

States. It provides direct and indirect employment to over 125,000 employees.

It has attracted one of the highest foreign direct investments in the country,amounting to around US$ 1049 million. Two of the biggest global brands in

this segment are well established in India.

Presently there are more than 7000,000 outlets retailing soft drinks in the

country. Soft drinks constitute the third largest packaged foods segment, after

packed tea and packed biscuits. Total export earnings of the industry are over

US$ 156 million per annum.

Penetration levels of aerated soft drinks in India are quite low compared

to other developing and developed markets, an indication of further potential

for rapid growth.

Packaged drinking water

The market size for packaged drinking water in India has been estimated at

around US$ 223 million. The industry comprises 215 companies which have

been granted licence for manufacturing packaged drinking water and 3 for

manufacturing packaged natural mineral water.

Trends such as shortage of drinking water in the large metropolitan cities,

changes in consumer lifestyles leading to demand for convenience and

availability of various packaged sizes to suit different needs have led to a spurt

in growth over the last 3-4 years and these trends are expected to continue

to fuel demand in this sector.


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Alcoholic beverages

India is the third largest market for alcoholic beverages in the world.

The demand for spirits and beer is estimated to be around 373 millioncases per annum. There are 12 joint venture companies producing grain

based alcoholic beverages that have a combined licensed capacity of

33.9 million litres per annum. 56 units are engaged in manufacturing

beer under licence from the Government of India. The demand per

annum for wine in the domestic market is estimated to be around 6

million bottles (750 ml), while the domestic production of wine is over

2.4 million bottles.

The market is estimated to grow at a healthy rate of around 25

per cent per annum in the next five years, indicating attractive

investment potential.

Growth in Trade

India had a 1 per cent share of overall global trade in 2004.

In the food category the gross Indian trade was US$ 9,862.34

million during fiscal year 2004, which was 10.6 per cent higher

than the previous year figure of US$ 8,914.82 million.

Source: Ministry of Food Processing Industry, Annual report 2005

Value(US$million)

Export of Processed marine Food Products

1179

1408.51248.1

1421.11325.8

0

500

1000

1500

1999-00 2000-01 2001-02 2002-03 2003-04

Year

Source: Ministry of Food Processing Industry, Annual report 2005

Exports (US$ million)

0

100

200

300

400

500

600

2000-01 2001-02 2002-03 2003-04 2004-05

Year

Processes fruits & vegetablesAnimal productsOther processed food(alcohol. Beverages, milled products etc.

US$million

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Exports of marine food products were around US$ 1325.7 million in fiscal year 2004.

Exports in this category have been almost consistent for the past few years.

Exports of processed fruits and vegetables increased to US$ 326.5 million in2005 from US$ 245 million in 2004. The exports of animal products from India

also increased from US$ 440.6 million in 2004 to US$ 502.7 million in 2005.

Exports of food products constituted 10 per cent of total Indian exports.

The major food and agro items exported from India are marine items, cereals

and preparation, nuts, processed foods, beverages etc.

India also imports several food products, valued at US$ 3,665.98 million in

fiscal year 2004. This was 21.1 per cent higher than the previous year figure of

US$ 3,026.2 million. The major import commodities and products pertaining to

this sector are edible oil (mainly palm oil), pulses and nuts. Food importsconstituted nearly 5 per cent of total imports for India.

The significant share of food products in Indias trade reflects the importance of this

sector for Indias growth as a global economy. Increasing trade in food products

indicates not only opportunity for growth in food processing, but also greater

acceptance and demand for processed food from India in overseas markets.

Growth in Foreign Direct Investment (FDI)

According to the Reserve Bank of India, the actual inflow of foreign direct

investment (FDI) in the food and food processing sector has been over

US$ 711.4 million till March, 2004. Total FDI in 2004 in the sector was

US$ 111.2 million up from US$ 36.5 million in 2003.

Nearly 30 per cent of FDI in this sector comes from EU countries such as

Netherlands, Germany, Italy and France. Some of the successful ventures from

EU countries are Perfetti, Cadbury, Godrej-Pilsbury, Nutricia International,

Manjini Comaco, etc.


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Competitive Advantage

FDI inflow received in FPI sector

250

200

150

100

50

0

US$million

102.3

43.3

217.7

111.2

36.5

1999-00 2000-01 2001-02 2002-03 2003-04

Year

India has several competitive advantages in the food processing sector,

which have been analysed using the framework shown below.

Indian Food Processing Industry Indias comparatively cheaper

workforce can be effectivelyutilized to setup large low cost

production bases for domestic andexport markets.

diverse agro-climatic conditions

India is second in world in termsof arable land (million hectares)

Firm strategy, structure

and rivalry

A large number of domestic aswell as multi-national players.

Highly copetitive industry

Factor conditions Demand conditions

High market awarenes.Rapid urbarization, increases literacy

and rising per capita income, have all

caused rapid growth and changes indemand patterns

Related and supporting

industries

India has a wide-ranging and largeraw material base suitable for food

processing industries.India has developed advanced

technology to support foodprocessing industry

In Five-year tax holiday for new

food processing units in fruits and

vegetable processing along withother benefits has bolstered the

Governments resolution ofencouraging growth in this

sector.Liberalized overall policy regime

Government

Demand conditions

India offers a huge growth opportunity for the food processing

sector due to the positive impact of demographic trends and

expected regulatory changes.

Large target consumer base and rising income levels:

India population is nearly 23 per cent of the global population and is

one of the most attractive consumer markets in the world today.

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Source: NCAER

Growing consuming class(mn households - annual income)

1 2 632.5

54.6

90.954.1

71.6

74.1

44

28.1

15.3

3323.4

12.8

1997-98 2000-01 2006-07

Destitutes ($4388)

Income levels across population segments have been growing in India. According toNCAER data, the consuming class, with an annual income of US$ 980(INR 45000) or

above, is growing and is expected to constitute over 80 per cent of the population by

2009-10. The increase in income levels of the Indian population and the emergence of

the consuming class that has higher propensity to spend, offers great growth

opportunities for companies across various sectors.

Changing age profile of the Indian population

As a consequence of the high birth rates prevalent until the 1990s, a large

proportion of the Indian population is relatively young - in the age group of 20-

59 years. This group is also high in consumption and therefore, this trend is

expected to provide a further boost to the growth of consumption in India.

Changing lifestyles

Urban consumers in India have become more exposed to western lifestyles,

through overseas travel and presence of foreign media in India. For example,

more than 5 million Indians travelled abroad last year and this number is

expected to increase by 15 per cent to 20 per cent per annum. Increase inthe population of working women and increasing prevalence of nuclear double-

income families, especially in urban areas, are other trends shaping lifestyles.

The food processing sector has been impacted by these trends as there has

been an increase in the demand for processed, ready-to-cook and ready-to-eat

food. It has been assessed by Euromonitor International, a market research

company, that the amount of money Indians spend on meals outside the home

has more than doubled in the past decade to about US$ 5 billion a year, and is

expected to further double in the next 5 years. These trends imply significant

growth potential for the sector in future and add to its investment

attractiveness.


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Factor conditions

India has a comparative edge over several other nations in terms

of its access to natural resources.

Indias Competitive edge in Food Processing

India Global Rank Share in Global Production (%)

Arable Land (million hectare) 161 2

Irrigated Land (million hectare) 55 1

Coast line (km) 7000 19

Major Food Crops (MT) 35 3 4

Fruits (MT) 47 2 10

Vegetables (MT) 82 2 10

Rice/Paddy (MT) 132 2 22

Wheat (MT) 65 2 12

Milk (MT) 88 1 16

Sugarcane (MT) 289 2 21

Pulses (MT) 12 1 21

Tea (MT) 0.88 1 28

Edible Oil seed (MT) 25 3 7

Cattle (million) 226 1 16

Source : Cygnus report, India food processing Sector, 2005

Due to its diverse agro-climatic conditions, it has a wide-ranging

and large raw material base suitable for food processing

industries. Presently a very small percentage of these are

processed into value added products. The semi-processed and

ready to eat packaged food segment is relatively new and

evolving.

India has the largest irrigated land in the world. It is also worldslargest producer of milk, tea and pulses. India has large marine

product and processing potential with varied fish resources along

the 8,041 km coastline, 28,000 km of rivers and millions of

hectares of reservoirs and brackish water. India also possesses

the largest livestock population in the world with 50 per cent of

worlds buffaloes and 20 per cent of cattle. Also, India is the

worlds largest milk producer.

Indias comparatively cheaper workforce can be effectively utilised

to set up large low cost production bases for domestic andexport markets. Cost of production in India is lower by about

40 per cent over a comparable location in EU and 10-15 per

cent over a location in UK.

Along with these factor conditions, India has access to significant

investments to facilitate food processing industry. There have

been increasing investments not only by domestic firms and

Indian government, but also foreign investors.

Related and supporting industries

The Indian food processing industry has significant support from

the well-developed R&D and technical capabilities of Indian firms.

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India has a large number of research institutions like Central Food

Technological Research Institute, Central Institute of Fisheries Technology,

National Dairy Research Institute, National Research and Development Centre

etc to support the technology and development in food processing sector inIndia.

Industry competitiveness

The Indian food processing sector is highly competitive.

There are a large number of players in the organised as well as unorganised

sector. The organised sector is small but growing - for example, it forms less

than 15 per cent of the dairy sector and around 48 per cent of the fruits and

vegetable processing.

The sector offers potential for growth and a large number of MNCs have

entered into India to leverage this opportunity.

Some of the successful overseas players in this sector include Unilever,

Cadbury, Nestle and Pepsi. These players face competition from strong Indian

brands. Companies have adopted various strategies to maintain and increase

their market share in India. These include competitive pricing, aggressive

advertising campaign, expansion plans etc. Examples of such strategies are:

Agro Tech Foods uses two strategies to counter the threat of low priced

competition. By launching lower-priced blended oils under the Sundrop

umbrella, and acquiring a fairly strong presence in the mass market for

edible oils through its low priced brand, Crystal. Secondly, it has re-

engineered its costs to lower its own fixed cost structure.

In the mass segment, Britannia has introduced biscuit packs at lower price

points.

Gits is strategically growing and broadening its export market and has

launched new international style export packaging.

The strategy followed by Haldiram is competitive pricing and labour

intensive products that predominantly cater to the Indian palette. It follows

aggressive marketing in terms of TV advertisements, print ads and kiosks ofHaldirams range of products at railway stations.

Hindustan Level Limited has followed the strategy of divesting its non-core

businesses and focusing on its food business as a growth driver.

New products are being continuously launched in all product segments by

Nestle. The dairy portfolio consisting of regular and flavoured curds,

skimmed milk and fruit-based milk, condensed milk and butter is being

expanded by launch of lassi and cheese.

High level of competition within the industry has lead to innovations in several areas,

thereby raising the overall capability levels in the sector. This will facilitate sustained

growth in the sector and help it to become globally competitive.


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Government regulations and support

The Government of India has been working to develop the food

processing industry in India through several initiatives. Oneindication of the importance that the sector receives is the

almost doubling of the present outlay for the sector from US$19.5 million in 2004-05 to US$ 41.35 million next year.The government has been developing agri-zones and the conceptof mega food parks to promote food processing industry inIndia. It is considering investing US$22.97 million in at least 10mega food parks in the country besides working towards offering100 per cent foreign direct investment and income tax benefitsin the sector.

In order to promote investment in the food processing sector,several policy initiatives have been taken during recent years.The liberalised overall policy regime, with specific incentives forhigh priority food processing sector, provides a very conduciveenvironment for investments and exports in the sector.Some of the initiatives include:

Allowing full repatriation of profits and capital.

Automatic approvals for foreign investment up to 100 per

cent, except in few cases, and also technology transfer.

Zero duty import of capital goods and raw material for 100per cent export-oriented units.

Allowing sales of up to 50 per cent in domestic tariff area foragro-based, 100 per cent export oriented units.

Government grants given for setting up common facilities inAgro Food Park.

Full duty exemption on all imports for units in exportprocessing zones.

Sector-specific government policies

Sector PolicyFruits & Though no industrial license is

Vegetables(F&V) required for setting up Fruits &Vegetable Processing industries,

setting-up 100 per cent ExportOriented Units require specific Govt.approvals.

Many Fruits & Vegetables Processingindustries are eligible for automaticapproval of foreign technologyagreement and up to 51 per cent

foreign equity participation includingtomatoes, mushrooms & other frozenvegetables, fruit, nuts, fruit-peel, fruit jellies, marmalades, fruit juices &vegetable juices etc.

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This sector is regulated by the Fruit Products Order,1955 (FPO), issued under the Essential CommoditiesAct.

All processing units are required to obtain a licenseunder this order.

Some items like: pickles & chutneys, tapioca sago andtapioca flour are reserved for exclusive manufacture in the

small scale sector.

Export of fruit & vegetable products is freelyallowed.

Fisheries Foreign equity is permitted in fish processing sector.Fish processing projects with a minimum of 20 percent value addition can be set up as 100 per centExport Oriented Units.

All items can be exported freely except for silverpomfrets of weight less than 300 gms.

Export of marine products is allowed only afterregistration of the units as an exporter with theMarine Products Export Development Authority(MPEDA), Cochin.

Meat & Poultry The Meat Products Control Order, 1973 under the

Essential Commodities Act, 1954 regulates themanufacture, quality and sale of all meat products

A license is required under this order to set up of afactory for producing/processing meat products.

Export of meat is subjected to pre-shipmentinspection and a certificate is required from StateAnimal Husbandry Department/Directorate ofMarketing and Inspection

Slaughter of cows is banned in most of the States.Export of beef is prohibited.

A No Objection Certificate (NOC) has to beobtained from the District administration for theslaughter of cattle, buffaloes etc.

Permission from the civic bodies/State Government

(Department of Animal Husbandry) is also required

before setting up a meat processing unit integratedwith a slaughter house.

Milk & Milk products Milk and Milk Products Order (MMPO) regulatesmilk and milk products production in the country.The order requires no permission for units handlingless than 10,000 litres of liquid milk per day or milksolids up to 500 tonnes per annum.

All the milk products except malted foods arecovered in the category of industries for whichforeign equity participation up to 51 per cent is

automatically allowed.

Ice cream, which was earlier reserved formanufacturing in the small scale sector, has nowbeen de-reserved. As such, no license is required forsetting up of large scale production facilities formanufacture of ice cream.


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Subsequent to decanalisation, exports of

some milk based products are freely

allowed provided these units comply with

the compulsory inspection requirements ofconcerned agencies like: National Dairy

Development Board, Export Inspection

Council etc.

Grains The Rice Milling Industry (Regulation) Act 1958

& Rice Milling Industry (Regulation & Licensing)

Rules 1959 have been repealed from 28 May,

1997.

Rice milling and pulse milling sectors,

which were earlier reserved for the

small scale sector, have now been

dereserved.

Since liberalisation, there is no license

requirement for setting up or capacity

expansion of roller flour mills. The mills

can obtain their wheat supply from any

source.

There is no license requirement or

price/distribution controls on

manufacture of wheat products.

Packaged Foods The industry is delicensed and automatic

approval for foreign investment up to 51 percent of equity (except for items like malted

food and items which are reserved for

production in small scale sector) is granted.

The setting up of 100 per cent export

oriented units requires specific govt.

approval.

The packaging laws and regulations

affecting food products are mainly covered

under the Standards of Weights and

Measures Act, 1976, and the Standards ofWeights and Measures (Packaged

Commodities) Rules, 1977 (SWMA)

specifying the quantity and package-

labelling regulations for all products.

The Prevention of Food Adulteration Act,

1954, and the Prevention of Food

Adulteration Rules, 1955 (PFA) specify

food adulteration/contamination norms and

permissible ingredients from consumer

health and safety point of view.

The Agmark Rules relate to the

quality specifications and needs of

certain agricultural products to be

eligible for Agmark certification.

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Profile of domestic and overseas players

Profile of domestic players

Dabur India Ltd. Beverages and

Culinary

Fruit juice, cooking pastes,

coconut milk, tomato puree,

lemon drink, chilli powder

and honey.

Closely held listed

company with Promoters

holding at 78.4% of the

total share capital.

Dabur Foods is a 100%

subsidiary of Dabur India

Turnover of Rs 858

million in 2004

Gits Food

Products Pvt Ltd

Snack foods and

Dairy

Sweet mix, namkeens, snack

mixes, meal mix, pure ghee,

dairy whitener and milk

powder

Gits exports to Europe,

UK, USA, Australia,

Canada, and the Middle

East contributing to the

extent of approximately

35% of its total revenue.

Gits is an unlisted

private family owned

business.

Godrej Industries

Ltd

Beverages and

Staples

Edible oils, vanaspati,

bakery fats, fruit drinks,

fruit nectar, fruit juices

and tomato puree.

Revenues from the food

segment were US$ 41.3

million (Rs1.9bn) in

FY04.

Haldiram

Marketing Pvt Ltd

Snack Foods Sweets, namkeens, syrups,

crushes, chips and papads

Started in 1936

Major share in the

namkeen and snack food

market in India.

strong presence in

northern India especially

in New Delhi.

Exports to USA, UK,

Canada, Australia,

Singapore and the UAE.

Player Segment Products About the company

The company will focus on boosting institutional sales to hotels,

restaurants and caterers in addition to retail sales

Gits is strategically growing and broadening its export market and

has launched new international style export packaging.

The companys strategy is to increase capacity utilization in edible

oils and to tap the niche health conscious market


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Turnover is estimated

at US$ 261 million

(Rs12bn), with the

export market

accounting for

approximately 10 per

cent of MTRs total

sales.

An ISO 9002 and

HACCP certified

company is amongstthe top five processed

food manufacturers in

India.

Ready-to-Eat curries

and rice, Ready-to-

Cook gravies, frozen

foods, ice creams,

instant snack and

dessert mixes, spices

(turmeric, coriander,

black pepper), pickles

and papads.

Snack Foods, Ice

creams

MTR Foods

Ltd

Leading player in the

fruit based beverages

segment and the

bottled water

segment.

Its flagship product is

the fruit based drink

Frooti Mango, which

has 75 per cent

market share.

Fruit drinks and

mineral water.

Beverages and

Bottled water

Parle Agro

Private Ltd

The company is a

subsidiary LP

Investments Ltd.

which is a wholly

owned subsidiary of

Jagatjit Industries Ltd.

PBDIT of around US$

0.8 million in 2004.

Milk powder, baby

food, cheese and

other milk products.

Dairy ProductsMilkfood


The strategy followed is competitive pricing and labor

intensive products that predominantly cater to the India palette

After establishing itself in the south, MTR is developing its brand in the west

and north Indian markets in line with the rapid expansion of its product

The Backward integration and aggressive media compaign

for its products launches has broadly been its strategy.

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The parent company

Unilever holds 51.55

percent of HLLs equity.

Unilever is a Fortune 500

transnational, which sells

Foods and Home and

Personal Care brands in

about 100 countries

worldwide.

Indias largest fast moving

consumer goods company,

with leadership in Home &

Personal Care Productsand Foods & Beverages.

HLLs brands, spread

across 20 distinct

consumer categories, with

combined volumes of

about 4mn tonnes and

sales of US$ 2.17 billion

(Rs100billion).

HLLs Foods segment is at

9 per cent, beverages are

at 12percent of its

businesses.

Tea, instant coffee, biscuits,

ice-creams, salt, wheat flour -

atta, instant drinks, soups,

jam and squash.

Beverages, Staples,

Dairy, Snack Foods

Hindustan Lever

Limited(HLL)

A leading player in the

Indian organised biscuit

market with nearly 30 per

cent value share.

The Nusli Wadia group,one of the oldest business

houses in India and

Groupe Danone, French

multi-products food

company, equally share the

48.5 per cent promoter

holding in Britannia.

Sales of Rs. 14.7 bn in

2004

Biscuits, flavored milk, dairy

whitener, ghee, bread, cake

and rusk

Bakery ProductsBritannia

Industries Ltd.

HLL has followed the strategy of divesting its non-core businesses and focusing on

its food business as a growth driver.

Britannia will strengthen its position by launching new products and improving

volumes and introducing variants of the existing ones


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Agro Tech

Foods


A dominant player in

the edible oils and

branded foods sector, in

India.

ConAgra Foods Inc of

USA, worlds third

largest foods company,

along with Tiger Brands

of South Africa holds a

majority stake of 52.3

percent in Agro Tech

Foods Ltd, through

CAG Tech Holdings,

Mauritius.

Revenue: US$ 274.2

million (Rs 12.6 bn in

2004)

Wheat flour (atta),

edible oil, vanaspati,

popcorn, french fries

and green peas.

Staples and snack

food

ITC is a listed

company with BritishAmerican Tobacco

(BAT) holding 33 per

cent stake and

Institutions holding 50

per cent stake.

ITC made its entry

into the branded &

packaged foods

business in August

2001 with the launch

of the Kitchens of

India brand.

A more broad based

entry was made in

mid 2002 and the

company currently has

a wider portfolio in

the confectionery,

staples and snack

foods segments.

Wheat flour-atta, salt,

ready-to-eat meals,

biscuits,

confectioneries, snacks

and cooking paste.

Staples and Snack

Foods

ITC Ltd.

ITCs Corporate strategy aims at creating multiple drives of growth using its

wide distribution reach, superior brand building capabilities, effective supply chain

management and acknowledged service skills in hoteliering.

Intends to diversify its product portfolio and faray into new markets by

focusing on vending as an important mode for product and brand differentiation

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Incorporated in 1959 as

Food Specialties, Nestle

Alimentana, Switzerland

promoted Nestle India

(NIL).

Nestle India is a 51 percent

subsidiary of Nestle SA

(founded 1866), which is

today the worlds largest

food and beverage company.

Gross turnover in the year

2003 was US$ 475 million

(Rs 23 billion)

Confectionery

Soft drink, fruit juice and

chips

Pepsico India

Holdings

Nestle India Pvt

Ltd

Cadbury India

Ltd.

Dairy, Beverages

and Snack Foods

Beverages and

Snack food

Instant coffee, condensed

milk, dairy whitener, infant

food, chocolates and

confectioneries.


PepsiCo was founded in

1965 through the merger of

Pepsi-Cola and Frito-Lay.

Tropicana was acquired in

1998 and PepsiCo merged

with The Quaker Oats

Company, including

Gatorade, in 2001.

Chocolates, hard boiled

confectionery, malt foods,

cocoa powder

Cadbury, a subsidiary of

Cadbury Schweppes is a

dominating player in the

Indian chocolate market

with strong brands like

Dairy Milk, Five Star, Perk,

Gems etc.

Dairy milk is the largest

chocolate brand in India.

Chocolates and

confectionery contribute to

75 per cent of Cadburys

turnover.

Sales of around US$ 166million in 2004.

The company plans to increase franchise of its existing brands and continue to explore

new product opportunities including adjacent market opportunities.

Papsis focus is high volume scales and is planning to raise capacity by setting up of new

greenfield plants as well as appointing new franchisee bottlers.

The company is focusing on launching new products in all product

segments.


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Positive outlook for the future

Indian food processing industry has seen significant growth and

changes over the past few years, driven by changing trends inmarkets, consumer segments and regulations. These trends, suchas changing demographics, growing population and rapidurbanisation are expected to continue in the future and,therefore, will shape the demand for value added products andthus for food processing industry in India. The Government ofIndias focus towards food processing industry as a prioritysector is expected to ensure policies to support investment inthis sector and attract more FDI. India, having access to vastpool of natural resources and growing technical knowledge base,has strong comparative advantages over other nations in thisindustry. The food processing sector in India is clearly an

attractive sector for investment and offers significant growthpotential to investors.

Exchange rates used

The following exchange rates have been used for Rupee toDollar conversion. (Source: http://www.x-rates.com)

Financial Year 1 US$ = Rupees1995-96 33.481996-97 35.581997-98 37.221998-99 42.131999-00 43.402000-01 45.752001-02 47.732002-03 48.422003-04 45.95

2004-05 44.8

CONTACT FOR INFORMATION

Information on the market and opportunities for investment inthe food processing sector in India can be obtained from theConfederation of Indian Industry (CII), which works with theobjective of creating a symbiotic interface between industry,government and domestic and international investors.

Confederation of Indian Industry (CII)The Mantosh Sondhi Centre23, Institutional AreaLodi RoadNew Delhi 110003

IndiaTel: + 91 11 2462 9994-97, 2462 2228 (D)Fax:+ 91 11 2469 7972Email: [email protected]

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DISCLAIMER

This publication has been prepared for the India Brand Equity Foundation (IBEF).

All rights reserved. All copyright in this publication and related works is owned by IBEF.

The same may not be reproduced, wholly or in part in any material form (including

photocopying or storing it in any medium by electronic means and whether or not

transiently or incidentally to some other use of this publication), modified or in any

manner communicated to any third party except with the written approval of IBEF.

This publication is for information purposes only. While due care has been taken during

the compilation of this publication to ensure that the information is accurate to the best

of IBEFs knowledge and belief, the content is not to be construed in any manner

whatsoever as a substitute for professional advice.

IBEF neither recommends nor endorses any specific products or services that may have

been mentioned in this publication and nor does it assume any liability or responsibility

for the outcome of decisions taken as a result of any reliance placed on this publication.

IBEF shall in no way, be liable for any direct or indirect damages that may arise due

to any act or omission on the part of the user due to any reliance placed

or guidance taken from any portion of this publication.


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